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Author: prime52 Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 2675  
Subject: Great Investing Books + slightly good advice!! Date: 12/28/2003 2:44 AM
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It's a wee bit long so here we go:

I'm 19, go to Mississippi State University, and am in a fraternity called Sigma Phi Epsilon. I'm also really into stocks. I've got around $12,000 invested through an Ameritrade account that I opened up last year after Christmas, exactly one year from today. I got in at a great time and gradually eased into more and more stocks.

The first book I ever bought and started to read that really had an impact was the Motley Fool Investment Guide. It was interesting, informative, and to my surprise, very witty. The next book was Buffett: The Making of an American Capitalist. Many nights I would stay up filled with interest and the odd feeling that I could relate to this guy Buffett, especially in his early years, the ambition and the drive to start business ventures and make money. After this book, the avalanche started. I wanted to get as much info about stocks as I could. There was no doubt in my mind that the way to wealth was in stocks. So I figured I'd get advice from my buddies David and Tom Gardner; I subscribed to the Motley Fool Stock Advisor. Like I said, all this happened around Christmas of last year.
When your young and it's Christmas, all you have to do to get infused with a little bit of cash is ask for it. I told family and friends all I want this year is money. So after the portion of my savings I wouldn't need for college and my Christmas money, I had $1250 to put in an Ameritrade account.
My first buy was EBay. I have sold a few thousand items on EBay and knew how it worked. I also saw that David Gardner approved of it in the Motley Fool Stock Advisor so I was all in. I didn't know as much as I know now about valuing a company, or what was important to look for in the financial statements. But I thought I knew enough and I knew owning this stock would motivate me to learn more. The next two stocks I got into were Websense and Quality Systems (also two MFSA recommendations). And that's pretty much all I owned until the summer, only $1250 worth spread over those three stocks. Since it was Christmas, I did a little bit of reading, here they are:

One Up on Wall Street- Peter Lynch
The Warren Buffett Portfolio- Robert Hagstrom
What to do with your Money Now- Motley Fool

Even more important than that, from December to summer, I looked through a lot of annual and quarterly reports and started to understand what all the numbers meant. It's amazing how most people are in the dark about how all of these big corporations work. There everywhere. I look around and see Chili's, Nike, ABC, La Quinta Inns, Applebee's, Wal-Mart, AOL. They're all public companies and you can see exactly how big they are and how they've been doing. Even better, you can be part owner of one!

Summer was where the real money started coming in. If your not in high school I recommend trying to get an internship that has to do with your college major or something you think you are interested in (experience is important these days and the pay is usually pretty good), that way you are making money and an investment in your future career (the later part is the more important). If you are in high school though, or a procrastinating college freshman (who missed the internship deadline), then you should be a waiter. Try to work at a nice restaurant or someplace new so you'll make more money. I was a waiter last summer and made a pretty good deal of cash. If you're not over 18 or not interested in dealing with the occasional food complainer, call around and try to get a job that pays at least $7.50 an hour. All in all I probably made around $3000 that I put into my Ameritrade account, again this was me going to the extreme and not spending very much money. Don't get too caught up in the advertisements, you don't have to go see the newest movie, buy the best video games, or go out every single night to enjoy yourself. I also got lucky and found out about a life insurance policy my grandfather had for me. I cashed it out for $2000. So now I had $6250 in the market and needed somewhere to put it. I subscribed to Motley Fool's Hidden Gems and liked what I saw. I started calculating valuations for companies like NetFlix, Talk America, Tenet Healthcare, Marvel, and whatever else I came across on fool.com or in the newsletters. After working through all the numbers, going through the 10-Q's and 10-K's, reading posts and news reports, I was ready to decide which stocks I wanted to buy. Actually I usually zero in on the ones that I can see the big picture for, like EBay, NetFlix, Overstock, or Websense. I like to picture in my head where I think these companies are and where their industries are headed. Are more and more people going to start wanting what they offer? Is there service convenient, does it save people money, are there plenty more folks out there who want to become paying customers. When I bought EBay, NetFlix, and Overstock the answer was clearly "yes." I also bought Talk America when it dropped after Tom Garner recommended it. I bought Tenet Healthcare as well; I figured it was a good turnaround at a good valuation. As the school year started, I still had a bit of cash sitting on the sidelines and then about $1500 more was added due to a scholarship refund (thank goodness I kept taking the ACT).

Pretty soon I sold Tenet Healthcare and part of my Websense to break even. Throughout this past semester I have purchased Amerigroup, Coinstar, Alderwood's Group, RedEnvelope, and J2 Global Communications in that order. I've made about 37% on my money so far and that's exactly $2863.70. If you calculate my annual returns it's closer to 60%. Now I don't expect this every year and I will probably lose money some years, I got in as the market was moving up. I go through this slightly long tale of investing to give anyone not as far along as me an example. This is how I did it. This is how I started from knowing nothing to develop a knowledge of investing- and I have a long way to go. The gains don't matter as much as you think, that's not the point I am trying to make. I want you to see the steps I took to get the money together and start picking stocks. If you are interested in the stock market or think you could be, then I say get after it. Life is short and compounded interest is just itching to work for you. For whatever reason the knowledge of sound investment strategy doesn't seem to reach out and grab people (maybe because it isn't even mentioned in almost all of the countries schools- and this includes colleges). Be one of the few who knows how to pick stocks and think long term, AND THEN ACTUALLY DO IT.


So what have we learned,
1. Save your money- you can't do anything without it. Don't let friends dictate your spending, if you have to stay in tonight, do it, read one of the books listed at the bottom. But do stay balanced, everyone needs to go a little wild sometimes.

2. Either learn what you're doing or Dollar Cost average into the Motley Fool Stock Advisor Recommendations until you do. What's that? You're not interested in this stuff, then dollar cost average into the MFSA recommendations anyway. You can put a certain % into an S&P index fund if you'd like, but I think the MFSA stocks as a group are pretty diverse, have smaller downside and larger upside than the S&P index. You may want to do this with Hidden Gems as well.

3. This stuff isn't hard if you enjoy it. If you don't like it, it's probably going to seem hard but I think it's worth working at anyway. If you read all of the Stock Advisor's, subscribe to a few daily Fool newsletters, and look over different companies financials and earnings releases you'll gradually understand more and more. It takes time, that's why I'm not telling you to pick 10 different stocks tomorrow. Keep looking at companies, keep reading, and keep thinking about this stuff and it will come. I promise.

And now, some great investing books I can vouch for, drumroll please...

1. Motley Fool Investment Guide
2. One up on Wall Street
3. Buffett: The Making of an American Capitalist
4. Beating the Street
5. Motley Fool: Rule Breakers, Rule Makers
6. The Warren Buffett Way

General Business Reading that I liked:

1. Barbarians at the Gate: The Rise and Fall of RJR Nabisco
2. Against the Gods: The Remarkable Story of Risk
3. Liar's Poker
4. Made in America: Sam Walton
5. The Accidental Theorist

An Advanced Book on Valuation:

1. Investment Valuation: Tools and techniques for determining the value of any asset- Aswath Damodaran

My favorite books that have nothing to do with investing:

1. The Best Nonrequired Reading 2002 (almost too funny to be legal)

2. Wild at Heart - John Eldredge

I hope this post of my story and thoughts have helped you realize, no matter what age you are, that you can successfully start investing. You don't have to go all out like I did, take your time, enjoy it. Investing is more than just a way to make money, it will open up your mind to a much wider world; you can spend your whole life working for a corporation and not truly know how things work. With investing you have a chance to see the big picture, to know what these millions of employees are working toward, to value how some entities are prospering while others are struggling for life. You may not have the passion I have for investing...but you will. The more you know, the more you're interested; and the closer you are to making more money than you ever thought possible.

That's it for now, Class dismissed.
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